Solicitor General Argues for Reversal of Tibble Decision

A brief submitted by the U.S. Solicitor General to the
United States Supreme Court argues in favor of plaintiffs in Tibble v. Edison International—a case that could have implications for retirement plan sponsors' ongoing duty to monitor investments.

The brief argues that the plaintiffs’ claims for breaches of
fiduciary duty are timely because “they are claims for breaches of the
duty of
prudence within the limitations period.” This is a critical issue in the
case,
which reached the Supreme Court from the 9th U.S. Circuit Court of
Appeals on a
question of whether damages assessed against utility company Edison
International
for failing to pursue cheaper share classes for mutual funds offered as
retirement plan investments should be limited only to those funds added
to the investment menu within the Employee Retirement Income Security
Act’s (ERISA’s) six-year statute of limitations period.

The brief says “the Investment Committees (Edison
International Trust Investment Committee and Trust Investment Subcommittee) were
not informed about the institutional share classes and did not conduct a
thorough investigation” of fund fees. According to the Solicitor General, these
facts “establish breaches of the ongoing duty of prudence within the
limitations period, because a prudent fiduciary would have considered whether
institutional-class funds were available and would have offered those funds to
save money for plan participants.”

Additionally, the brief says the 9th Circuit misunderstood
the claims and that the lower courts’ rulings, if allowed to stand, could have a
greatly adverse effect for participants in and beneficiaries of ERISA retirement plans.

Case
documents show that, during the initial bench trial, a
district court held that utility company Edison International had
breached its
duty of prudence by offering retail-class mutual funds as retirement
plan
investments when lower-cost institutional funds were available. But, the
court
limited that holding to three mutual funds that had first been
offered to plan participants within the six-year statute of limitations
period under ERISA—meaning mutual funds placed on the plan menu more
than six years
before the date of the complaint were excluded from the decision.

The decision was appealed to the 9th
Circuit, which upheld the district court’s decision to limit
the settlement to the three mutual funds adopted within the ERISA limitations
period. This led to the Solicitor General’s first brief, in which the government’s chief appellate lawyer sided with Tibble
on the argument that such claims should not be time-barred.

Some
in the retirement planning industry see big stakes in the case, suggesting a ruling in favor of the plaintiffs could
significantly expand fiduciary liability and the potential for plan
participants to file disruptive fiduciary breach claims under ERISA. Others say
the sky won’t fall for plan sponsors and employers if the limitations period is found not to apply in this case.

In a recent conference call, one ERISA specialist said the
real issue at hand in Tibble v. Edison has
less to do with the strength or weakness of the ERISA limitations period than
many in industry and media have suggested. As Fred Reish, an attorney with Drink Biddle & Reath and
leader of the firm’s ERISA practice, explains, “the true issue before the
Supreme Court is whether there is a discreet and ongoing duty to monitor
investments that is distinct from the initial duty to select.”

“The trial court and the 9th Circuit, consistent with other
appeals courts, ruled that once the six-year window has gone by from when an investment
was selected, there is no continuing duty to monitor,” Reish explains. “As the
decision stands, the duty to monitor doesn’t start that limitation period
again each year, it doesn’t keep rolling that way. So once six years go by from the
initial fund selection, the fiduciaries are safe from plaintiffs seeking damages.”

Reish says the lower court rulings create some tension
between the plan sponsor community, which wants to have protection from costly litigation,
and the financial adviser and ERISA consultant community, which for years has
been preaching that there is a distinct and serious duty to monitor.

“If
this goes if favor of the defendants it will eliminate
or substantially reduce the ongoing duty to monitor,” Reish notes. “In
this sense,
again, the question before the Supreme Court is not really a statute of
limitations question, as some have interpreted. The real question
is whether there is an independent duty to monitor that has its own
six-year statute
of limitations, such that every year the failure to monitor starts a new
limitation period, and the sponsor can then be sued on at any point in
the next six years
once a failure to monitor has occurred.”

Reish urges both the plan sponsor and adviser
communities to “watch this very carefully, because it could diminish the
perceived value of advisers if the Supreme Court says there is no legal separation
between the ‘ongoing duty to monitor’ and the original decision to select.”

On the other hand, he warns, if the Supreme Court says there
is a separate ongoing duty to monitor that exists as its own separate legal entity,
and that the statue of limitations runs on this ongoing duty independent of the initial
selection, it would effectively reinforce the importance of monitoring
and could enhance the value of advisers.

“And then there could be an inside position,” he says, “which
would say something like, the duty to monitor is not generally a separate duty,
but on occasions it can be. And then the Supreme Court could define or outline what
some of those cases are.

“Hold
on to your seats,” he concludes, “because it’s going to be significant.”